GER30,H1
EGB yields continue to slide, with peripherals outperforming. Bond markets continue to rally in the wake of dovish leaning ECB and BoJ statements and amid cautious stock markets as the focus turns back to trade as Trump readies China tariffs. The 10-year Bund yield is down -4.0 bp at 0.38% now, the Gilt down -3.0 bp at 1.302%, while peripherals are outperforming and the Italian 10-year dropped -11.0 bp to 2.61% so far this morning. So Draghi’s strategy to soften the pill of the end of QE has worked so far, although in our view the reaction is somewhat overdone, as rate hike expectations had already been pushed back in the light of weaker data releases over the past months.
European stock markets were mostly extending gains this morning, with the GER30 up 0.43% and the UK100 0.18%, with weaker currencies helping to underpin demand. Concerns however on the trade front increase, as President Trump’s expected to announce escalation of trade tariffs, and more precisely he expected to confirm tariffs on China later today. Meanwhile, concerns have been raised also over a possible withdraw of US from the WTO.
Trade development risks along with neutral to positive data this morning out of Eurozone, set US Dollar slightly lower from fresh highs. The Eurozone trade surplus narrowed in April, as import growth outstripped export growth, while the Eurozone May HICP inflation was confirmed at 1.9% y/y, as expected. That justifies the ECB’s decision to announce the end of net asset purchases, especially as wage growth is also starting to pick up.
This recent short-term correction of Dollar’s rally has led EURUSD up to 1.1615. In the Stock Market however, we have seen Stock market sentiment hit by fresh trade jitters. Draghi’s boost to stock markets didn’t last too long, with GER30 and FTSE 1000 down by -0.3% and -0.77% respectively.
The Ger30 declined from 13,178.04 highs, down to 13,041 area, as euro moved up from lows and trade concerns bite. The index retest the Pivot Point at 13,038.00, which could provide intra-day support to the instrument. In the hourly chart, 6 consecutive bearish candles have been identified today, however their small body and long wicks, suggest that the intra-day move lower is not powerful enough. The RSI slides below overbought territory, while the MACD moves in the positive area, slightly below its signal line. Both indicators confirm this temporary weakness, however they remain in the positive bias as they are both moving above neutral zone. Nevertheless, the GER30 moves above all 3 MAs in the hourly chart.
Technical-wise, everything is pointing to the continuation of the uptrend with latest move being just a correction of the uptrend. Hence a break within the day of the next immediate support at the 50-period MA, at 12,930.00 could suggest a swing lower to yesterday’s lows.
In the wider picture, the index remain in an uptrend since May 31, well supported by 50-DAY MA since April 25.
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Andria Pichidi
Market Analyst
HotForex
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